BINDING PROMISES
Lawsuit raises the issue of what is a material change to design in pre-construction condos,
Condominium buyers have launched a class-action lawsuit against Emerald City Developments for a building at 70 Forest Manor Drive in north Toronto because the building does not having direct access to the Sheppard/Don Mills subway station.
Some buyers bought a unit based on the belief that it would be directly connected to the subway. It will be up to the courts to decide whether this was an actual promise and if so, whether buyers are entitled to a reduced price for their units. Here are the issues: One of the items in the 2008 purchase and sale agreement says that the building’s features include a “Lower lobby with direct access to the subway station.” This was also apparently promoted in marketing materials at the time.
When owners moved into their units this January, they found that the building does not have direct access to the subway from the lower lobby. Owners must leave the building to get to the subway which is nearby. One buyer said that having direct access was important to him for safety reasons for his daughter to travel to the University of Toronto.
The original contract also contained the usual developer’s clause that says the builder can change plans and specifications of the building at its sole discretion, or as required by any government. This is as long as it is not a material change, including any changes advertised in any sales brochure.
In law, a material change is one that would cause someone to change their mind and not buy a property. If the developer makes a material change, they are obligated to give buyers 10 days to cancel the contract, even if the change occurs years after the original contract was signed. This was one of the arguments made by buyers suing the Trump condominium in downtown Toronto. They did not want to close, complaining that the financial promises made at the time they signed their contracts were not true at closing.
The builder appears to be taking the position that since it will be relatively few steps from the building to access the subway, this is not a material change and does not merit any reduction in the price paid.
Toronto lawyer Harry Herskowitz says that in the recent case involving the Trump Tower, one reason owners argued they should be allowed to back out of their agreements, was because the developer promised that the building would connect to the underground PATH system.
The building doesn’t connect to PATH. The buyers said that this was a material change which should permit them to cancel their deals. In an April 2013 decision, Ontario Judge J.R. Mackinnon decided it was not a material change. This was primarily because evidence introduced by the builder suggested that most of the buyers were investors and so the failure to have the connection to the PATH would not have been material to them. This judgment was confirmed at the Court of Appeal on February 24, 2014. When you buy a pre-construction condominium, you have 10 days to change your mind. Use the time to go to a lawyer to review your agreement so you understand what all the clauses really mean. You must also be aware that you may not receive exactly what was promised, as the builder can still make changes to your square footage, the layout of your unit and the finishings, as long as these are not material, and you cannot complain. This is why it is important to check the reputation of the builder. Go to other buildings they have completed and ask the owners the following questions:
Did they build what was promised? Did they finish on time? Did they correct any deficiencies in a timely manner? Do proper research before you buy, and you should not be disappointed later. Mark Weisleder is a Toronto real estate lawyer. Contact him at mark@markweisleder.com